Labor Quality and the Wealth of Nations

Gregory Clark, an economics professor at the University of California, Davis, identifies the quality of labor as the fundamental factor behind economic growth. Poor labor quality discourages capital from flowing into a country, which means that poverty persists. Good institutions never have a chance to develop.

Read the whole article, then read Clark's book (some of it is on line here).

I have not yet read the book, and I am eager to do so. Meanwhile, lots of questions come to mind. How to measure labor quality? How to sort out cause and effect? Above all, I wonder how to reconcile Clark's views with those of William Lewis (The Power of Productivity), who says that you can take an unskilled man from Latin America and turn him into a highly productive construction worker simply by moving him to the United States and putting him to work under American management practices.

Comments and Sharing

Of course what no can do is turn a highly productive construction worker in the United States into a productive worker in Latin America by moving American management there. That is because it is not management at all, but the lack of sufficient demand there for his services.

Doesn't this contradict the law of comparative advantage. Even if a country has an absolute advantage in nothing, it can still make itself and other countries better off by specializing in what it does relatively more efficiently.

Capital stays away from places where it is likely to get stolen. It is for that same reason that people don't invest in skills that can't earn them a decent return.

Maybe the issue is not the quality of labor but the cost of labor. A key factor in the emergence of the modern world was the black death that shifted labor from the abundent to the scarce resource and the reverse for capital.
This lead to a rise in capital per labor ratio that in turn generated the higher standard of living.

The reason that a construction worker from Latin America is more productive in the US is that he is given more capital to work. For example, in the US we use machines and elevators to lift construction materials to higher floors. Because labor is cheap in Latin America they have people carry the materials up ladders.
But if labor were more expensive in Latin America they would change their production process to save labor. Ever notice all the fork lifts on the back of lumber delivery trucks --
that is the capital that makes the delivery man more productieve. Use to be that they had to send a three or four man crew out with the delivery to spend a half day unloading it -- now one man does it in a fraction of the time.

My first job after I got my BA was with a US multinational manufacturing firm in Venezuela.
When we first opened the plant we brought in old
second hand machinery from the US. But after a couple of years when the labor force was trained we replaced the machinery with the latest equipment from Germany and our workers became just as productive with this new machinery as our US workers.

Maybe the real reason the US has a higher standard of living is that through most of our history labor was the scarce and expensive resource.

The crews that went out to unload the truck was pretty much a minimum wage job. So we lost these minimum wage jobs and now have one trained high quality individual earning a much higher wage. But aren't we as a society better off because of this? Isn't this a modern example of the process that Clark is talking about.

I, too, could not get through online to Tyler's suggested reading, the pdf file of this forthcoming work by Clark. I tried various public routes. Thanks for calling it to our attention. Probably Tyler had private access in his role as a reviewer of this forthcoming work, and forgot that outsiders could not access it directly in the same way.

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